2014 (2) TMI 27 - HC - Income Tax

Validity of re-opening of assessment u/s 147 - Held that - The omission to discuss or deal with material furnished in the course of original assessment proceedings, cannot result in formation of reasons to believe under Section 147 - In assessee s case, each of the materials in respect of the four firms and the other documents were put to the assessee in the course of original assessment proceedings which culminated in the order of 29.09.1993 - Relying upon the decision in Commissioner of Income Tax Vs. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA - The reasons recorded by the AO were merely change of opinion - Decided in favour of petitioner.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act for reopening assessment for AY 1991-92.
2. Whether the reasons recorded for reopening the assessment constituted "reasons to believe" under Section 147.
3. Examination of the concept of "change of opinion" in the context of reassessment.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act for reopening assessment for AY 1991-92:
The petitioner sought the quashing of a notice issued by the Revenue under Section 148 of the Income Tax Act on 26.04.1995 for the Assessment Year (AY) 1991-92. The petitioner contended that the original assessment proceedings were concluded on 20.09.1993, and the reassessment notice was time-barred. The court examined whether the notice was validly issued based on the reasons provided by the Revenue.

2. Whether the reasons recorded for reopening the assessment constituted "reasons to believe" under Section 147:
The Revenue relied on the reasons recorded for reopening the assessment, which included the discovery of new information from the bank about the assessee's undisclosed investment in four fictitious companies. The reasons cited included:
- The assessee's alleged use of fictitious firms to convert black money into white.
- The involvement of the assessee in operating bank accounts and availing overdraft facilities using FDRs of these fictitious firms.
- The affidavit of Sanjay Dadhich and other materials seized during search operations.

The court scrutinized whether these reasons constituted valid "reasons to believe" under Section 147. It was argued that the original assessment order was silent on the explanation provided by the petitioner, and the reassessment was based on a mere change of opinion.

3. Examination of the concept of "change of opinion" in the context of reassessment:
The court referred to the Full Bench decision in Commissioner of Income Tax Vs. Kelvinator of India Ltd., which held that a mere change of opinion does not justify reopening an assessment. The Supreme Court in Kelvinator emphasized that "reasons to believe" must be based on tangible material and not merely a change in the Assessing Officer's opinion on the same material. The court also noted that the Full Bench decision in Usha International Ltd. reiterated this principle.

The court found that in the original assessment proceedings, the Assessing Officer had called for and considered material related to the four firms and other documents. The reassessment notice was based on the same material, indicating a change of opinion rather than new tangible material. Therefore, the reasons recorded did not constitute valid "reasons to believe" under Section 147.

Conclusion:
The court concluded that the notice dated 26.04.1995 and the consequential reassessment proceedings were invalid as they were based on a change of opinion rather than new tangible material. Consequently, the notice and proceedings were quashed, and the petition was allowed without any orders as to costs.

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